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Perhaps you are skeptical about technology, or just someone who sees a short-term trade opportunity. No matter the reason, there are always people wanting to bet against Bitcoin. THE simplest way is through futures contracts, offered at Bitmex and Binance Futures. There are others, but these do not require proof of identification and dominate in terms of volume.

How does the future contract work?

The first difference to the normal exchange market is that you will negotiate a bet on the price of Bitcoin. There are no real BTC purchases and sales, just bets between two people, one waiting for the high and the other who will win in the event of the fall. In addition, exchanges allow you to operate leveraged, that is, deposit 100 and make a trade of 500 or even greater.

How does this magic occur?

Remember that we said that you are negotiating a bet on the price of Bitcoin? Well, the person who deposited 100 and made a purchase of 500, that is, leveraged 5x, is unable to withdraw those 500. The reason? He bought 500 units of the bet, he didn't buy BTCs.

How do you earn real money?

Those who bought will only win effectively if the BTC price is above the initial bet amount. Those who sold need to hope for a fall in the price. The cool thing is that you can leave at any time: whoever bought the bet can resell it to someone else, and the same goes for those who were waiting for the fall.

How does this market operate?

Let's use the example of Binance Futures, which operates based on the stablecoin USD Tether (USDT). You can start by buying or selling (betting on the drop) of BTC, different from the traditional market.

You don't need to have Bitcoin to trade BTC futures on Binance Futures, just margin Tethers. At Bitmex, the guarantee margin deposited is in BTCs, but everything else works the same way.

Function to transfer balances between Binance and Binance Futures

How to make money in the fall?

Once you transfer the Tethers to Binance Futures, you can set your selling price and select the number of future BTCs you want to sell. Assuming you sold 1 future BTC at a price of 9,000, but you only had 900 Tethers in your account. Its initial leverage is 10x. If the price drops 10% to 8,100 you can reset the transaction by buying back the future BTC and taking home 10 x 900 = 9,000 Tethers of profit.

What's the catch?

Did you think you only have a little something? Well, the first problem is that even though you deposited 900 Tethers, in the example above you made a trade of 9,000 because you traded leveraged by 10x. The rate in effect at Binance Futures is 0.04% for the taker. However, the biggest problem would be a 10% rise in the price of the future BTC contract. In this case your loss will be 100%, as your trade was leveraged 10x.

Moral of the story

The futures contract market is more complex than the traditional one, but it is the best vehicle for those who want to bet on the fall. If you want to venture into this world, I suggest starting small, depositing 30 Tethers (or 0.003 BTCs at Bitmex) and learning from your mistakes.


About the author

Marcel Pechman served as a trader for 18 years at UBS, Deutsche and Safra. Since May 2017, he has been doing arbitrage and trading in cryptocurrencies, as well as co-founder of the cryptocurrency analysis website RadarBTC.

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